Sugar millers should take DTI dare

Local sugar millers should take the challenge of DTI Secretary Peter Favila “to just export all their outputs.” Favila bravely asserted that the government can already take care of domestic sugar supply via government-to-government import deals. True to form, Favila does not appear to know what he is talking about.

Favila may as usual, fall flat on his face if the millers take his dare. Favila’s bravado was supposedly based on an assurance of Agriculture Secretary Arthur Yap that they will be able to get cheaper sugar from government-to-government import deals. I find it difficult to think of any government stupid enough to sign a deal with us at prices lower than world market.

I also called Secretary Yap and he denied advocating g-to-g deals on sugar. If at all, he said, he wants the private sector including the industrial users to go to the world market to get their supply. I have a piece of paper from Yap that says: “No government imports but NFA and PITC can import on record so private sector can get a Tax Expenditure Subsidy.” Dapat siguro tinagalog na lang ni Yap si Favila para naintindihan siya.

Another government official who knows his sugar business is saying Favila’s government import scheme is easier said than done. “The next question is, can you find supply (abroad)? When will delivery be? Supply is even tighter outside the country, that’s exactly why world prices are going through the roof,” SRA administrator Rafael L. Coscolluela said in a media interview.

Experts quoted by news reports I googled agree with Cosculluela. Global rates are seen to remain high for about two years because of shortfalls in sugarcane production worldwide. Analysts blame the shortfall on a combination of bad weather and farmers shifting to other crops when sugar prices were low.

It seems the local millers are right when they said importation would not solve the current price problem. The Philippine Sugar Millers Association said importing sugar would not pull down local retail prices of the sweetener for as long as world prices remain high. The group said the price of imported sugar could hit around P50 a kilo.

The millers are right. Last week (Jan. 8), Bloomberg reported that “sugar prices rose for the fourth time this week on speculation that countries including India, the world’s largest consumer, will increase imports to ease a widening supply shortage.” Sugar futures have more than doubled in the past 12 months as adverse weather hampered harvests in Brazil and India, the world’s largest producers, extending a global-production deficit.

India, Pakistan, Indonesia, Mexico, the US and Russia all may need to import more sugar, while the new cane crop in Brazil won’t become available until March, analysts said. “The belief is that end-users will have to step up eventually as stocks are being depleted,” Nick Penney, a trader at Sucden Financial Ltd. in London, said in a report. “The trend is still very much up, overall.”

If we are planning to import, we may be a little late. India contracted to import 3.8 million tons in the year that began Oct. 1 and may need two million tons more, according to the Indian Sugar Mills Association. Pakistan, Asia’s biggest user after India and China, invited bids to import 150,000 metric tons of white sugar after a shortage drove prices close to a record. Indonesia’s state-owned trading company reached an agreement to buy 50,000 tons of refined sugar, Deputy Agriculture Minister Bayu Krisnamurthi said in Jakarta.

Insidefutures.com validates the rising price trend. March sugar prices continued their surge to a new 28-3/4 yr nearest-futures high. Bullish factors include (1) the action by India, the world’s 2nd-largest sugar producer and largest consumer, to import sugar for a second year after the weakest monsoon season since 1972 widened its sugar supply deficit, (2) Brazil Agriculture Ministry’s cut in its sugar production estimate for this year to 34.6 MMT, -6 percent below the Sep estimate, and (3) commodity fund buying.

In Purchasing.com, it was reported that world sugar prices are at the highest level in 28 years. The price of sugar on world markets has soared by 57 percent so far this year as parts of Brazil, the largest exporter, had rainfall four times more than normal, making the cane too wet for milling.

In India, Financial Express reports: New Delhi: Retail sugar price in Delhi is inching closer to the Rs 50-per kg mark with rates moving up by nearly Rs 1 everyday since Jan. 1. The sweetener became costlier by Rs 1 to Rs 45 a kg on Jan. 7 from Rs 44 per kg the previous day, according to the government data.

Sugar prices have more than doubled from the Rs 21 level from beginning of the last year, mainly due to lower production. Since the beginning of the year, sugar has become dearer by over 15 percent or Rs 6 per kg. In the wholesale market of New Delhi, sugar was trading at Rs 44.5 per kg on Thursday (last week) and therefore, the retail prices are expected to firm up further.

Trade Undersecretary Zenaida Maglaya said her office had received reports that the retail price of sugar had already reached P48 a kilo when the suggested retail price for the sweetener was placed at only P41-P43 a kilo. She added that sugar prices could even hit P50 a kilo if nothing would be done to either augment supply or stabilize prices. With the Indian rupee just about equal to the peso in dollar terms, the domestic price going up to P50 a kilo feared by the DTI is just about where it should really be.

In Malaysia, Prime Minister Datuk Seri Najib Tun Razak is asking Malaysians to think whether the government should continue subsidizing the price of sugar. He said the government spent close to RM1billion each year to subsidize the price of sugar while the number of diabetics in this country was among the highest in the world.

“What we should do is change our dietary habit by reducing our sugar intake. I myself drink tea without sugar. This means we can change; we don’t need so much sugar.

“There’s no logic in the government spending almost RM1bil yearly to subsidize a food product that can bring harm to the people,” Najib told reporters. Najib said the people should also view the sugar price increase positively, that is, by changing their dietary habit for their own good health.

The way I see it, government should just let domestic sugar prices to rise to world market levels and allow our battered sugar industry to recover some of their past losses. Sugar, a commodity traded in the world market, has a world market price we must respect. In the same way that we allow foreign producers of domestic energy (oil, natural gas, geothermal, coal) to charge world market prices, we should allow domestic sugar producers to charge world market prices too. Why discriminate against our farmers?

According to industry data, the Philippines has more than 400,000 tons of both raw and refined sugar as of Jan. 3. That is said to be enough to serve current demand. The milling season will also peak in the next two months. Why import?

Why is it so difficult for our administration officials and policy makers to allow our farmers (rice as well as sugar) to make some money in the domestic market? Why is there a strong bias to import and support foreign farmers?

As for the urban consumers who will be up in arms as sugar prices reflect world market price levels, tell them to use less sugar. It will even be good for their health. –Boo Chanco (The Philippine Star)